Over the last several years, a number of private equity firms have acquired payday lenders and subprime installment lenders, funneling institutional capital from pension funds, foundations, endowments and others into enterprises that can trap consumers in a cycle of debt.
While they are by no means the only companies active in subprime consumer lending, through a series of mergers and acquisitions private equity-owned firms have become significant players in both the payday lending and subprime installment lending markets. In terms of brick-and-mortar stores, private equity firms own lenders with a total of more than 5,000 US locations. In addition, private equity and venture capital firms have provided capital for several startups making online payday loans, at times with triple digit annual percentage rates (APRs) rivaling payday lenders.
Firms included in this report:
- JLL Partners – ACE Cash Express
- Lone Star Funds – DFC Global
- FFL Partners – Speedy Cash
- Diamond Castle Holdings, Golden Gate Capital— Community Choice Financial
- Fortress Investment Group – OneMain Financial, ZestFinance, Cash Converters
- Blackstone Group – Lendmark Financial Services
- Warburg Pincus – Mariner Finance
- Sequoia Capital, Technology Crossover Ventures – Think Finance, Elevate Credit
- Victory Park Capital – Think Finance, Elevate Credit, LendUp, Personify Financial, Avant
Currently, payday lenders charge triple digit annual interest rates, often 300 percent or higher. A large body of research has demonstrated that these products are structured to create a long-term debt trap that drains consumers’ bank accounts and causes significant financial harm, including delinquency and default, overdraft and non-sufficient funds fees, increased difficulty paying mortgages, rent, and other bills, loss of checking accounts, and bankruptcy. The lack of underwriting for ability to repay, high fees and access to a borrower’s checking account or car title enable lenders to repeatedly flip borrowers from one unaffordable loan to another. A large portion of borrowers eventually default, but often not before paying hundreds or even thousands of dollars in fees.
Private equity firms have brought new capital and in some cases a new level of sophistication to the subprime lenders they acquired, in some cases enabling the payday and installment lenders to buy competitors1, sell off securities based on the loans they make2, or engage in aggressive legislative and lobbying strategies.
Some private equity-funded payday and installment lenders have run afoul of state and federal lending regulations or evade state laws governing consumer lending.